Melbourne is tightening as one of Australia’s most supply-constrained data centre markets, with fresh state backing for AI infrastructure adding a new variable to an already capacity-limited environment. Recent market data points to a sector under pressure. Analysis from Knight Frank highlighted strong take-up through 2025, with more than 120MW absorbed in the first half of the year alone, while JLL has pointed to a growing development pipeline anchored by major campus-style builds.
Projects from operators including AirTrunk, NEXTDC and Canberra Data Centres have come to define Melbourne’s expansion, particularly across the city’s western industrial corridor. Developments such as NEXTDC’s planned AUD 2 billion campus at Fishermans Bend illustrate the scale and direction of travel.
Yet even as supply ramps, utilisation remains exceptionally tight.
Vacancy below 2% as demand shifts to build-to-suit
According to DatacenterHawk, Melbourne’s multi-tenanted data centre capacity has reached around 800MW, with vacancy below 2%. Speaking to W.Media, Donny Gunadi, senior insight analyst for APAC, said the dynamics underpinning that tightness are structural rather than cyclical. “While the market will see established operators continue expanding to support domestic enterprise demand, the growth is driven by purpose-built or build-to-suit facilities,” he said.
As a result, Gunadi expects vacancy to remain constrained in the near term, even as new capacity comes online. “The business model has shifted from speculative builds to demand-driven builds,” he added.
This aligns with broader observations from JLL and Knight Frank that hyperscale and AI-led demand is reshaping development strategies, with pre-leasing and bespoke deployments becoming the dominant model.
Land and power edge remains – but is evolving
One of Melbourne’s traditional advantages over Sydney has been relative access to land and power, helping position it as the next major Australian growth market. Gunadi said that advantage remains, but the ecosystem is becoming more sophisticated in how it manages demand. “Power capacity supply and demand dialogue has turned into a regular planning exercise,” he said, noting that utilities and grid operators are becoming more adept at interpreting large-scale requests.
At the same time, rising demand is beginning to flow through to land pricing. “Landlords and landowners understand the value of their property and may demand a higher premium for their land parcels.”
This reflects a broader shift flagged in market reports, where early-stage advantages in land availability risk narrowing as competition intensifies and infrastructure constraints emerge.
Western corridor dominates as new clusters emerge
Development activity remains heavily concentrated in Melbourne’s western industrial corridor, where legacy infrastructure has supported rapid deployment. “The western corridor of Melbourne was industrial area previously, therefore power and land are readily available,” Gunadi said.
However, he expects geographic diversification to follow. “We are seeing some growth in the northern corridor as well, for example Craigieburn, as well as some development in regional Victoria leveraging renewable and clean energy sources.” This mirrors early signs identified by analysts that secondary clusters could emerge as prime locations become constrained and sustainability considerations gain prominence.
Open market but hyperscale gravity is real
Despite the dominance of major players such as AirTrunk, NEXTDC and CDC in recent announcements, Gunadi said Melbourne is not yet a closed market. “The market remains open and I believe there will be room for more players to enter,” he said. However, he cautioned that entry will depend on how AI demand evolves and on operators’ ability to meet hyperscale requirements.
“The demand for cloud and hyperscale infrastructure is still there… and will continue growing as well,” he said. In practice, this suggests a market where new entrants are possible, but increasingly shaped by the scale, credibility and global relationships required to secure large AI and cloud deployments.
State policy adds new layer to demand outlook
Over the past six months, the Victorian government moved to more explicitly position data centres within its economic strategy. In a State of the State address last November, Premier Jacinta Allan announced a Sustainable Data Centre Action Plan, backed by AUD 5.5 million in public funding and aimed at unlocking up to AUD 25 billion in private investment.
That policy direction has since been reinforced through a broader AI strategy, which frames data centres as critical infrastructure underpinning economic growth. The government argues that AI could contribute up to AUD 30 billion to the state economy over the next decade, with data centres described as “the backbone of the digital economy” and central to supporting high-performance compute demand.
The strategy also points to practical enablers, including coordinated planning using transport, energy and water datasets, and a focus on workforce development to support construction and operations at scale. Taken together, these measures signal a more proactive stance from Victoria in competing with New South Wales for digital infrastructure investment.
Setting the stage for industry debate
The combination of tight supply, hyperscale-led demand, and increasing policy support is likely to shape discussion across the sector in the months ahead. With Melbourne’s vacancy still below 2% and capacity increasingly tied to pre-committed builds, questions remain around how quickly supply can scale – and whether infrastructure constraints will begin to mirror those seen in Sydney.
These themes are expected to feature prominently at W.Media’s upcoming Melbourne Cloud & Data Center Convention 2026, where operators, investors and policymakers will examine how the market evolves as AI demand accelerates.
Donny Gunadi will be appearing on a panel session “From Site Selection to Delivery: Building More Successful Data Centre Projects in Australia” alongside, Aurecon client director – digital infrastructure, Philip Motteram, Stack Infrastructure VP engineering – testing & commissioning APAC, Charles Muscat and moderator Digital Infrastructure Associates founder Chris Molloy.
The Melbourne Cloud & Datacenter Convention 2026 is on 23 April 2026 at the Melbourne Convention & Exhibition Centre. To attend please visit: https://clouddatacenter.events/events/melbourne-cloud-datacenter-convention-2026/